Elara Capital expects EBITDA to decline by nearly 4 per cent YoY for its coverage universe.
Emkay Global says that Q1 is likely to be a weak quarter for the sector, with flat revenues and a nearly 12 per cent YoY decline in EBITDA, owing to lockdowns across the world. Currency tailwinds and lower operating expenditure (opex), it says, will mitigate the impact to some extent. It estimates operating margins to fall nearly 260 basis points (bps) YoY. On a sequential basis, revenue/EBITDA is seen falling by 4 per cent /5 per cent, with a nearly 20 bps fall in margins.
It must be noted that rupee continued to depreciate against the US dollar to around Rs 75 in 1QFY21 against Rs 73 in 4QFY20 and Rs 69 in 1QFY20.
"Indian generics are net beneficiaries of rupee depreciation against US dollar / Euro, which will reflect in higher realisations. Further, with little activity on marketing/travelling, we expect opex to come off as well. This will be partially negated by the sharp depreciation in emerging market currencies against rupee (Brazilian Real, Russian Ruble for example) as sourcing is largely from India and costs are rupee-denominated," the brokerage explains.
According to Centrum Broking, the Active Pharmaceutical Ingredient (API) segment is expected to post the best quarter as the input costs are lower and API realisation has improved. "We expect our API-focused coverage to post revenue growth along with better margins, it says.
It expects companies under its coverage universe to report revenue growth of 2 per cent YoY while EBITDA is expected to grow 7 per cent QoQ and fall 11.5 per cent YoY.
Companies that are likely to outperform/underperform
Among the lot, Ipca Laboratories, Laurus Labs, Granules India, Aarti Drugs, Aurobindo Pharma, and Alembic Pharma are expected to report robust numbers for the quarter, led by superior execution, deferred sales from Q4, and operating leverage. Specifically, Hydroxychloroquine and Valsartan-led opportunity are expected to drive strong YoY growth in Ipca Labs and Alembic Pharma, respectively, analysts say. Aarti Drugs is expected to benefit from API demand scenario and lower material costs.
On the other hand, Sun Pharma, Glenmark Pharmaceuticals, and Lupin are seen posting a relatively weaker quarter led by declines in US sales. "Divi's Laboratories can see some impact from a possible fall in the custom chemical synthesis (CCS) business, due to possible disruption in R&D activities amongst innovators," notes Emkay Global.
Edelweiss Securities expects Dr Reddy's, Cadila Healthcare, and Aurobindo Pharma to report decent numbers while the businesses of healthcare companies such as Dr. Lal PathLabs and Thyrocare Technologies are expected to remain weak as normal operations and wellness testing took a hit during the lockdown.
Things to watch out for
More than the earnings, analysts believe investors will keenly watch out for management commentaries on the pace of recovery, especially in India. The Department of Justice (DOJ) penalties on price-fixing of drugs, lower-than-expected growth in India, and API disruption/price increases are the key risks to the sector, they say.
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